Why You Should Create Multiple
Supply Chains
Consumers have grown accustomed to
getting things their way. With customer demands growing more sophisticated and
customization becoming more popular in several categories, the number of products
on the market in almost every industry has skyrocketed. Complexity is here to
stay, and manufacturers must adapt.
To date, many manufacturing
companies have reacted to this reality by reducing their number of products in
order to invest more in those that generate the most profit. But although this
approach has its uses, it will eventually run up against an inescapable
truth—the increasingly diverse tastes of savvy and global consumers are now a
fact of commercial life.
But don’t panic, manufacturers.
Accommodating the myriad and complex tastes of your customers isn’t as hard as
it seems. The solution: a differentiated supply chain. Instead of companies
having one supply chain that struggles to meet all their needs, they can design
multiple supply chains that work together to serve different segments based on
different markets, consumers, products, or seasons.
Don’t panic, manufacturers. The
solution to pleasing your customers is a differentiated supply chain.
One alcoholic beverage company we
worked with had a highly complex product portfolio and sales of the different
products varied. However, a small proportion of its products represented a
surprisingly large and stable volume of sales. So we designed an efficient
supply chain purely to handle this stable segment and a second, more responsive
one to deal with less predictable demand. These two supply chains worked in
tandem, but didn’t get in each other’s way.
The primary intent of the efficient
chain was to reduce cost, but it had the additional benefit of reducing CO2
emissions. By better shaping and synchronizing orders with manufacturing and
delivery, the new system allows more products to be shipped direct from plant
to customer.
Multiple supply chains can also
customize service levels. The efficient supply chain seeks to maintain the
expected service level at the lowest possible cost, whereas the goal of the
responsive supply chain is the reverse: to improve service to the customer at a
somewhat higher, but still acceptable, cost. Sensitive to peaks and troughs in
unpredictable demand, it avoids tying up valuable capacity in the supply chain
and gets the product on the shelves before it loses its appeal to the consumer.
We also worked with a large apparel company that found it needed three
supply chains—one for basic goods always in demand, o one for seasonal styles
updated four times a year, and one for the latest fashions. Each supply chain
had a different lead time, inventory size, and mode of business planning. Basic
items perpetually in demand—T-shirts and socks—were sent cheaply on slow
freighters, whereas the latest fashions were whisked to the stores while demand
was at its peak and they commanded the highest price.
The much shorter interval between production and sales for seasonal and fashion
items reduced storage and redistribution costs. The results were exceptional:
The company was able to reduce its working capital by about 30 percent, while
the gross profit margin increased by almost 6 percent.
Creating a portfolio of supply chains can also strengthen product
development—if a company doesn’t have to wait for free capacity in its one
supply chain, it can react quickly to emerging trends.
Differentiated supply chains mark a real departure for manufacturers in a
number of ways. Not only do they take a market-back view of things in which the
needs of product development, customers, and markets are taken into account all
at once, they can also improve a company’s internal relationships.
Supply chain departments tend to concentrate on improving efficiency and
reducing complexity in the existing system. But limiting the number of products
can lead to problems in sales and marketing when customers want more variety.
Differentiated supply chains can transform this sometimes antagonistic relationship
into a more productive one.
The piecemeal approach of the past sought to optimize each step of the chain
in isolation. A differentiated supply chain strategy adopts a holistic view,
which can unlock new opportunities for companies to find ways to be as
efficient as possible while catering to as many consumers as possible.
Some intermediate steps need to be taken. Adopting a differentiated supply
chain strategy is not simply a matter of flicking a switch. Any company
considering such a switch in strategy would have to spend some time
strengthening its internal capabilities and instituting a prudent change
management strategy. IT systems, for example, would need to be reconfigured.
But the greatest shift is likely psychological. Moving from a silo mentality
to cross-functional cooperation—and from a mind-set that resisted variety to
one that welcomes it—will not happen overnight. It takes some time to absorb
such changes, but if there’s anything our work with differentiated supply
chains has shown, it’s that doing something several different ways is, in fact,
far simpler than doing it one way.
http://www.strategy-business.com/blog/Why-You-Should-Create-Multiple-Supply-Chains?gko=269a6
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